Question

Why is the size effect considered an anomaly?

Answer 1

Size effect in the market is considered a market anomaly because size effect will be advocating that the smaller companies will be tending to outperform the larger company and this is because smaller companies will be growing up on a lower base whereas larger company will have to employ large amount of capital for the same growth rate and it can be said that smaller company have a better chance to grow and a smaller company has higher chance to outperform the larger companies and this is known as side effect.

Market anomaly will be defining something against the normal course of action which has been set out in accordance with Efficient market hypothesis and hence, size effect is one of the market anomaly because smaller companies will be tending to outperform the larger companies due to the lower base.